Second Quarter Adjusted Earnings Per Share of $1.53, Up 10
Percent Over the Second Quarter of 2018, Excluding Acquisition and
Divestiture Costs
Record Segment Margin in Second Quarter of 17.9
Percent
Operating Cash Flow in Second Quarter of $880 Million, A
Record for a Second Quarter
Full-Year 2019 Earnings Guidance at Midpoint of Range
Affirmed
Operating Cash Flow for 2019 Now Expected to be Between $3.3
Billion and $3.5 Billion, $200 Million Above Prior Guidance
Power management company Eaton Corporation plc (NYSE:ETN) today
announced that earnings per share were $1.50 for the second quarter
of 2019. Adjusted earnings per share, which exclude charges of
$0.03 per share for acquisition and divestiture transaction and
integration costs, were $1.53. This represents an increase of 10
percent over the second quarter of 2018.
Sales in the second quarter of 2019 were $5.5 billion, up 1
percent over the second quarter of 2018. The sales increase
consisted of 2½ percent growth in organic sales, partially offset
by 1½ percent negative currency translation.
Craig Arnold, Eaton chairman and chief executive officer, said,
“We had a solid second quarter, with adjusted earnings per share at
the high end of our guidance range. Organic growth came in at 2½
percent, reflecting a moderation of global growth, particularly in
Europe and China. Our segment margins in the second quarter were
17.9 percent, an all-time quarterly record and above the high end
of our guidance. This represents a 90 basis point improvement over
the second quarter of 2018. We had all-time record margins in three
segments: Electrical Products, Electrical Systems and Services, and
Aerospace.
“Operating cash flow in the second quarter was $880 million, a
record for a second quarter. For the first half, operating cash
flow was $1.43 billion, a first half record. We now expect full
year 2019 operating cash flow to be between $3.3 billion and $3.5
billion, $200 million above our prior guidance,” said Arnold. “We
continued to return substantial cash to our shareholders in the
quarter, repurchasing $260 million of our shares, bringing our
first half repurchases to a total of $410 million.
“For full year 2019, we are maintaining our prior guidance at
the midpoint. We are, however, narrowing our guidance range by
$0.05 at the top and the bottom of the range. As a result, we now
expect 2019 adjusted earnings per share to be between $5.77 and
$5.97, representing at the midpoint a 9 percent increase over 2018,
excluding the 2018 arbitration decision,” said Arnold. “For the
third quarter of 2019, we anticipate adjusted earnings per share to
be between $1.50 and $1.60, an 8 percent increase at the midpoint
over the third quarter of 2018, excluding the 2018 arbitration
decision.”
Business Segment Results
Sales for the Electrical Products segment were $1.8 billion, up
2 percent over the second quarter of 2018. Organic sales were up 4
percent, partially offset by negative currency translation of 2
percent. Operating profits were $361 million. Excluding $1 million
of transaction costs related to the spin-off of the Lighting
business, adjusted operating profits were an all-time record of
$362 million, up 8 percent over the second quarter of 2018.
“Operating margins in the second quarter were 19.5 percent.
Excluding costs related to the spin-off of the Lighting business,
adjusted operating margins were 19.6 percent, up 110 basis points
over 2018 and an all-time quarterly record,” said Arnold. “Orders
in the second quarter were up 1 percent over the second quarter of
2018, driven by continued growth in residential and commercial
construction markets in the Americas, partially offset by softness
in industrial markets.”
Sales for the Electrical Systems and Services segment were $1.6
billion, up 5 percent over the second quarter of 2018. Organic
sales were up 5 percent, and the acquisition of Ulusoy added 1
percent to sales, partially offset by negative currency translation
of 1 percent. Operating profits were $275 million. Excluding
transaction and acquisition integration costs of $1 million related
to Ulusoy, adjusted operating profits were an all-time record of
$276 million, up 22 percent over the second quarter of 2018.
“Operating margins were 17.4 percent, an improvement of 240
basis points over 2018 and an all-time quarterly record,” said
Arnold. “The twelve-month rolling average of our orders in the
second quarter was up 3 percent, with growth across all regions.
Excluding hyperscale data center orders, which are sometimes lumpy
due to customers placing orders for multiple years in a single
quarter, the twelve-month rolling average of our orders in the
second quarter was up 8 percent.”
Hydraulics segment sales were $698 million, down 3 percent from
the second quarter of 2018. Organic sales were flat, with negative
currency translation of 3 percent. Operating profits in the second
quarter were $80 million, down 21 percent from the second quarter
of 2018.
“Orders in the second quarter decreased 8 percent from the
second quarter of 2018, driven by continued weakness in the global
mobile equipment market,” said Arnold.
Aerospace segment sales were $517 million, a quarterly record
and up 12 percent over the second quarter of 2018. Organic sales
were up 13 percent, while negative currency translation was 1
percent. Operating profits in the second quarter were an all-time
record $127 million, up 41 percent over the second quarter of
2018.
“Operating margins in the quarter were 24.6 percent, 520 basis
points over 2018 and an all-time quarterly record,” said Arnold.
“The twelve-month rolling average of our orders in the second
quarter was up 15 percent. We saw particular strength in orders for
commercial transports, military fighters, and the commercial
aftermarket.
“We were pleased to sign in July a commitment to acquire
Souriau-Sunbank Connection Technologies,” said Arnold.
“Souriau-Sunbank is a leader in aerospace connectors and provides
us with the capability to more effectively serve the growth of
electrical systems on aircraft. Additionally, we believe we have
significant opportunities to expand distribution of
Souriau-Sunbank’s products through our large electrical wholesaler
network.”
The Vehicle segment posted sales of $803 million, down 11
percent from the second quarter of 2018. Organic sales were down 9
percent and currency translation was negative 2 percent. Operating
profits in the second quarter were $136 million, down 18 percent
from the second quarter of 2018.
“Our revenue in Vehicle declined due to global weakness in light
vehicle markets, as well as revenues that transferred over to the
Eaton Cummins joint venture,” said Arnold. “The joint venture’s
revenues in the second quarter grew 11 percent over the second
quarter of 2018.”
eMobility segment sales were $84 million, up 1 percent over the
second quarter of 2018. Organic sales were up 2 percent, partially
offset by negative currency translation of 1 percent. Operating
profits in the second quarter were $7 million, down 50 percent from
the second quarter of 2018 due to increased investment in research
and development.
“Operating margins in the quarter were 8.3 percent,” said
Arnold. “We continued to win new business, including another major
high-voltage inverter win for a new plug-in hybrid platform. The
estimated mature year revenue from this platform is expected to be
about $160 million. Our total estimated mature year revenue from
all the wins in eMobility since the segment was formed at the start
of 2018 is $390 million.”
Eaton is a power management company with 2018 sales of $21.6
billion. We provide energy-efficient solutions that help our
customers effectively manage electrical, hydraulic and mechanical
power more efficiently, safely and sustainably. Eaton is dedicated
to improving the quality of life and the environment through the
use of power management technologies and services. Eaton has
approximately 100,000 employees and sells products to customers in
more than 175 countries. For more information, visit Eaton.com.
Notice of conference call: Eaton’s conference call to discuss
its second quarter results is available to all interested parties
as a live audio webcast today at 11 a.m. United States Eastern Time
via a link on Eaton’s home page. This news release can be accessed
under its headline on the home page. Also available on the website
prior to the call will be a presentation on second quarter results,
which will be covered during the call.
This news release contains forward-looking statements concerning
third quarter and full-year 2019 earnings per share, mature-year
inverter revenue from a new platform, mature-year revenue from
eMobility wins since the start of 2018, and the Souriau-Sunbank
transaction. These statements should be used with caution and are
subject to various risks and uncertainties, many of which are
outside the company’s control. The following factors could cause
actual results to differ materially from those in the
forward-looking statements: unanticipated changes in the markets
for the company’s business segments; unanticipated downturns in
business relationships with customers or their purchases from us;
competitive pressures on sales and pricing; unanticipated changes
in the cost of material and other production costs, or unexpected
costs that cannot be recouped in product pricing; the introduction
of competing technologies; unexpected technical or marketing
difficulties; unexpected claims, charges, litigation or dispute
resolutions; strikes or other labor unrest; natural disasters; the
performance of recent acquisitions; unanticipated difficulties
completing or integrating acquisitions; new laws and governmental
regulations; interest rate changes; changes in tax laws or tax
regulations; stock market and currency fluctuations; and
unanticipated deterioration of economic and financial conditions in
the United States and around the world. We do not assume any
obligation to update these forward-looking statements.
Financial Results
The company’s comparative financial results for the six months
ended June 30, 2019 are available on the company’s website,
www.eaton.com.
EATON CORPORATION plc
CONSOLIDATED STATEMENTS OF
INCOME
Three months ended June 30
Six months ended June 30
(In millions except for per share
data)
2019
2018
2019
2018
Net sales
$
5,533
$
5,487
$
10,838
$
10,738
Cost of products sold
3,697
3,671
7,270
7,244
Selling and administrative expense
907
901
1,824
1,790
Research and development expense
151
145
307
301
Interest expense - net
63
68
129
138
Other (income) expense - net
(23
)
8
(33
)
6
Income before income taxes
738
694
1,341
1,259
Income tax expense
102
83
183
161
Net income
636
611
1,158
1,098
Less net income for noncontrolling
interests
—
(1
)
—
—
Net income attributable to Eaton
ordinary shareholders
$
636
$
610
$
1,158
$
1,098
Net income per share attributable to
Eaton ordinary shareholders
Diluted
$
1.50
$
1.39
$
2.73
$
2.50
Basic
1.51
1.40
2.74
2.51
Weighted-average number of ordinary
shares outstanding
Diluted
423.1
437.3
424.5
439.5
Basic
421.6
435.2
422.8
437.0
Cash dividends declared per ordinary
share
$
0.71
$
0.66
$
1.42
$
1.32
Reconciliation of net income
attributable to Eaton ordinary shareholders to adjusted
earnings
Net income attributable to Eaton ordinary
shareholders
$
636
$
610
$
1,158
$
1,098
Excluding acquisition integration and
divestiture charges (after-tax)
14
—
25
—
Adjusted earnings
$
650
$
610
$
1,183
$
1,098
Net income per share attributable to Eaton
ordinary shareholders - diluted
$
1.50
$
1.39
$
2.73
$
2.50
Excluding per share impact of acquisition
integration and divestiture charges (after-tax)
0.03
—
0.06
—
Adjusted earnings per ordinary
share
$
1.53
$
1.39
$
2.79
$
2.50
See accompanying notes.
EATON CORPORATION plc
BUSINESS SEGMENT INFORMATION
Three months ended June 30
Six months ended June 30
(In millions)
2019
2018
2019
2018
Net sales
Electrical Products
$
1,849
$
1,806
$
3,609
$
3,538
Electrical Systems and Services
1,582
1,513
3,046
2,894
Hydraulics
698
723
1,384
1,433
Aerospace
517
463
1,019
921
Vehicle
803
899
1,613
1,792
eMobility
84
83
167
160
Total net sales
$
5,533
$
5,487
$
10,838
$
10,738
Segment operating profit
Electrical Products
$
361
$
334
$
692
$
641
Electrical Systems and Services
275
227
467
394
Hydraulics
80
101
160
191
Aerospace
127
90
243
179
Vehicle
136
166
258
298
eMobility
7
14
12
25
Total segment operating profit
986
932
1,832
1,728
Corporate
Amortization of intangible assets
(94
)
(96
)
(187
)
(194
)
Interest expense - net
(63
)
(68
)
(129
)
(138
)
Pension and other postretirement benefits
expense
(2
)
1
(2
)
(1
)
Other corporate expense - net
(89
)
(75
)
(173
)
(136
)
Income before income taxes
738
694
1,341
1,259
Income tax expense
102
83
183
161
Net income
636
611
1,158
1,098
Less net income for noncontrolling
interests
—
(1
)
—
—
Net income attributable to Eaton
ordinary shareholders
$
636
$
610
$
1,158
$
1,098
See accompanying notes.
EATON CORPORATION plc
CONDENSED CONSOLIDATED BALANCE
SHEETS
June 30, 2019
December 31, 2018
(In millions)
Assets
Current assets
Cash
$
412
$
283
Short-term investments
385
157
Accounts receivable - net
3,944
3,858
Inventory
2,853
2,785
Prepaid expenses and other current
assets
532
507
Total current assets
8,126
7,590
Property, plant and equipment - net
3,510
3,467
Other noncurrent assets
Goodwill
13,463
13,328
Other intangible assets
4,766
4,846
Operating lease assets
419
—
Deferred income taxes
303
293
Other assets
1,657
1,568
Total assets
$
32,244
$
31,092
Liabilities and shareholders’
equity
Current liabilities
Short-term debt
$
2
$
414
Current portion of long-term debt
5
339
Accounts payable
2,268
2,130
Accrued compensation
357
457
Other current liabilities
1,818
1,814
Total current liabilities
4,450
5,154
Noncurrent liabilities
Long-term debt
8,079
6,768
Pension liabilities
1,266
1,304
Other postretirement benefits
liabilities
324
321
Operating lease liabilities
311
—
Deferred income taxes
389
349
Other noncurrent liabilities
1,064
1,054
Total noncurrent liabilities
11,433
9,796
Shareholders’ equity
Eaton shareholders’ equity
16,306
16,107
Noncontrolling interests
55
35
Total equity
16,361
16,142
Total liabilities and equity
$
32,244
$
31,092
See accompanying notes.
EATON CORPORATION plc NOTES TO THE SECOND QUARTER 2019
EARNINGS RELEASE
Amounts are in millions of dollars unless indicated otherwise
(per share data assume dilution).
Note 1. NON-GAAP FINANCIAL INFORMATION
This earnings release includes certain non-GAAP financial
measures. These financial measures include adjusted earnings,
adjusted earnings per ordinary share, and operating profit before
acquisition integration and divestiture charges for each business
segment as well as corporate, each of which differs from the most
directly comparable measure calculated in accordance with generally
accepted accounting principles (GAAP). A reconciliation of each of
these financial measures to the most directly comparable GAAP
measure is included in this earnings release. Management believes
that these financial measures are useful to investors because they
exclude certain transactions, allowing investors to more easily
compare Eaton Corporation plc's (Eaton or the Company) financial
performance period to period. Management uses this information in
monitoring and evaluating the on-going performance of Eaton and
each business segment.
Net income per ordinary share of $4.91 for the year ended
December 31, 2018 was $5.39 excluding the $0.48 per share expense
from an arbitration decision related to the legacy Cooper
Industries business acquired in 2012. Net income per ordinary share
of $0.95 for the third quarter of 2018 was $1.43 excluding $0.48
per share impact from the expense related to the arbitration
decision.
Note 2. ACQUISITION INTEGRATION AND DIVESTITURE
CHARGES
Eaton incurs integration charges related to acquired businesses,
and transaction and other charges to divest businesses. A summary
of these charges follows:
Acquisition integration and
divestiture charges
Operating profit as reported
Operating profit excluding
acquisition integration and divestiture charges*
Three months ended June 30,
2019
2019
2018
2019
2018
2019
2018
Business segment
Electrical Products
$
1
$
—
$
361
$
334
$
362
$
334
Electrical Systems and Services
1
—
275
227
276
227
Hydraulics
—
—
80
101
80
101
Aerospace
—
—
127
90
127
90
Vehicle
—
—
136
166
136
166
eMobility
—
—
7
14
7
14
Total business segments
2
—
$
986
$
932
$
988
$
932
Corporate
12
—
Total acquisition integration and
divestiture charges before income taxes
14
—
Income taxes
—
—
Total after income taxes
$
14
$
—
Per ordinary share - diluted
$
0.03
$
—
*Operating profit excluding acquisition integration and
divestiture charges is used to calculate segment operating margin
where that term is used in this release.
Acquisition integration and
divestiture charges
Operating profit as reported
Operating profit excluding
acquisition integration and divestiture charges*
Six months ended June 30,
2019
2019
2018
2019
2018
2019
2018
Business segment
Electrical Products
$
2
$
—
$
692
$
641
$
694
$
641
Electrical Systems and Services
1
—
467
394
468
394
Hydraulics
—
—
160
191
160
191
Aerospace
—
—
243
179
243
179
Vehicle
—
—
258
298
258
298
eMobility
—
—
12
25
12
25
Total business segments
3
—
$
1,832
$
1,728
$
1,835
$
1,728
Corporate
23
—
Total acquisition integration and
divestiture charges before income taxes
26
—
Income taxes
1
—
Total after income taxes
$
25
$
—
Per ordinary share - diluted
$
0.06
$
—
*Operating profit excluding acquisition integration and
divestiture charges is used to calculate segment operating margin
where that term is used in this release.
Business segment charges in 2019 related to the planned spin-off
of the Lighting business and the acquisition of Ulusoy Elektrik,
and were included in Selling and administrative expense. In
Business Segment Information, the charges reduced Operating profit
of the related business segment.
Corporate charges in 2019 related primarily to the planned
spin-off of the Lighting business and were included in Selling and
administrative expense. In Business Segment Information, the
charges were included in Other corporate expense - net.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190730005522/en/
Eaton Corporation plc Kelly Jasko, Media Relations, +1 (440)
523-5304 kellymjasko@eaton.com or Yan Jin, +1 (440) 523-7558
(Investor Relations)
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